Question

A company is considering investment in one of the two firms, Dues Ltd. and Common Stock Ltd., both of which operate in the same industry. Dues Ltd. finances 25 crores in assets with 24 crores in debt and 1 crore in equity, while Common Stock Ltd. finances 25 crores in assets with 1 crores in debt and 24 crore in equity. Calculate debt ratio and debt equity ratio for the two firms.

Answer 1

| Particulars | Dues Ltd | Common Stock Ltd. |
| Debt Ratio | = 24 crores / 25 crores = 0.96 or 96% | = 1 crore / 25 crores= 0.04 or 4% |
| Debt Equity Ratio | = 24 crores / 1 crore= 24 times | = 1 crore / 24 crores= 0.042 times |